4.	STOCKHOLDERS' EQUITY (DEFICIT)

(a)

Common stock

(i)

During the year ended June 30, 2010, the Company:

(a)

Issued 270,000 shares of common stock as consideration for consulting services. These shares have been recorded at a value of $81,000 representing the fair value of the shares on the date of issuance.

(b)

Closed three private placements for which it received gross proceeds of $1,542,888. The first private placement amounted to $743,190 for issuance of 2,123,400 units, each unit consisting of one share of common stock at $0.35 and one warrant at $0.001. Each warrant entitles the holder to purchase one share of common stock on or before February 8, 2012 at an exercise price of $0.70. The second private placement amounted to $228,534 for issuance of 507,853 units, each unit consisting of one share of common stock at $0.45 and one warrant at $0.001. Each warrant entitles the holder to purchase one share of common stock on or before May 14, 2012 at an exercise price of $0.70. The third private placement amounted to $571,164 for issuance of 1,631,899 units, each unit consisting of one share of common stock at $0.35 and one warrant at $0.001. Each warrant entitles the holder to purchase one share of common stock on or before June 3, 2012 at an exercise price of $0.70. Exercise of all the investment warrants may be required in the event that the market price for the common stock exceeds $1.30 per share.

Total commission costs paid amounted to $149,251.

The Company determined that the warrants did not contain any provisions that would preclude equity treatment.

(ii)

During the year ended June 30, 2011, the Company:

(a)

Closed a private placement of 1,006,979 units, each unit consisting of one share of common stock at $0.65 and one-half warrant at $0.001. Each whole warrant entitles the holder to purchase one share of common stock on or before December 31, 2012 at an exercise price of $1.00. Exercise of all the investment warrants may be required in the event that the market price for the common stock exceeds $1.50 per share.

Gross proceeds received during the year ended June 30, 2011 totalled $643,285, and gross proceeds received during the year ended June 30, 2010, previously shown as subscriptions received, totalled $11,250.

(b)

Closed a private placement of 813,063 units, each unit consisting of one share of common stock at $0.55 and one warrant at $0.001. Each warrant entitles the holder to purchase one share of common stock on or before February 28, 2013, at an exercise price of $1.00. Exercise of all the investment warrants may be required in the event that the market price for the common stock exceeds $1.50 per share.

The Company determined that the warrants did not contain any provisions that would preclude equity treatment.

(c)

Issued 330,879 shares of restricted common stock and paid cash of $37,735, as consideration for private placement share issue costs payable. The shares have been recorded at an aggregate fair value of $137,481.

Of the amounts above, $52,719 was accrued as share issue costs as at June 30, 2010. The net of these amounts total $122,497 and such amount is included as stock issue costs in the accompanying consolidated statements of stockholders' equity (deficit).

(d)

Issued 860,800 shares of common stock upon exercise of 860,800 share purchase warrants at $0.50 per warrant, recording gross proceeds of $430,400.

(iii)

During the year ended June 30, 2011, the Company entered into contracts for consulting services, which call for stock and option awards over the terms of the contracts (note 13).

It was determined that these were non-employee awards which did not contain a performance commitment but all terms were known up-front. In accordance with ASC 505-50, Equity-Based Payments to Non-Employees, the fair value of these awards is measured at the grant date and at each subsequent reporting date until the counterparty's performance is complete. The total fair value expense is recognized over the service period.

(a)

The Company issued 50,000 shares of restricted common stock on execution of the agreement dated November 19, 2010, 75,000 shares of restricted common stock thirty days from the execution date and 125,000 shares of restricted common stock ninety days from the execution date. On the six- and nine-month anniversaries, 125,000 shares of restricted common stock are to be issued for a total of 500,000 shares of restricted common stock. Restrictions will be removed upon contract completion.

The Company issued 250,000 shares of common stock at a fair value of $294,303, which has been included as consulting fees.

(b)

The Company issued 150,000 shares of common stock on execution of the agreement dated December 1, 2010. On the six-month anniversary, 100,000 shares of common stock are to be issued.

The Company issued 150,000 shares of common stock at a fair value of $105,000, which has been included as consulting fees.

(c)

The Company issued 46,118 shares of common stock and a fair value of $82,500 has been recorded and included as consulting fees.

(iv)

During the year ended June 30, 2012, the Company completed five private placements.

(a)

The first private placement amounted to $23,000 for the issuance of 41,819 units consisting of common stock at $0.55 per share and warrants at $0.001 per warrant to purchase 41,819 shares of common stock on or before December 31, 2013 at an exercise price of $1.00 per share.

(b)

The second private placement amounted to $179,000 for the issuance of 511,428 units consisting of common stock at $0.35 per share and warrants at $0.001 per warrant to purchase 511,428 shares of common stock on or before November 29, 2016 at an exercise price of $0.70 per share.

(c)

The third private placement amounted to $200,000 for the issuance of 571,128 units consisting of common stock at $0.35 per share and warrants at $0.001 per warrant to purchase 856,692 shares of common stock on or before January 3, 2014 at an exercise price of $0.70 per share.

(d)

The fourth private placement amounted to $200,000 for the issuance of 666,666 units consisting of common stock at $0.30 per share and warrants at $0.001 per warrant to purchase 1,000,000 shares of common stock on or before March 31, 2014 at an exercise price of $0.57 per share.

(e)

The fifth private placement amounted to $550,774 for the issuance of 1,573,939 units consisting of common stock at $0.35 per share and warrants at $0.001 per warrant to purchase 2,360,459 shares of common stock on or before January 31, 2014 at an exercise price of $0.70 per share. Share issue costs of $12,875 were incurred.

The Company determined that the warrants did not contain any provisions that would preclude equity treatment.

The holder of a convertible debenture converted $138,000 of principal to 629,158 shares of the Company's common stock resulting in $236,926, representing the present value of convertible debenture and the fair value of derivative liability recorded, allocated to equity, see note 5.

(b)

Preferred stock

The preferred stock may be issued in one or more series. The distinguishing features of each series, including preference, rights and restriction, are to be determined by the Company's Board of Directors upon the establishment of each such series.

During the year ended June 30, 2000, the Company designated 1,000,000 of its authorized 20,000,000 preferred shares as Series A convertible preferred stock with a par value of $0.001 each and a stated value and liquidation preference of $1.00 per share.

Cumulative dividends are accrued at the rate of 5% annually, payable in cash or shares of common stock at the option of the Company. The shares may be converted to restricted shares of common stock at the average trading price ten days prior to conversion and are entitled to votes equal to the number of shares of common stock into which each series of preferred stock may be converted. Each Series A convertible preferred share may be redeemed by the Company for $1.50 within one year after the date of issue and for $2.00, $2.50, $3.00, $3.50 and $4.00 per share in each of the subsequent five years after the date of issue, with the redemption price increasing by $0.50 each year thereafter. The Company may, at its discretion, redeem the shares at a price higher than stipulated herein.

During the year ended June 30, 2000, the Company agreed to settle $383,228 of accounts payable and $281,182 of long-term debt, both amounts owed to officers and directors of the Company, by issuing 664,410 shares of Series A convertible preferred stock.

During the years ended June 30, 2001 to June 30, 2005, a total of 355,872 shares of preferred stock were redeemed.

(c)

Stock options and stock-based compensation

Stock option plans

In January 2001, the Company adopted the Integral Technologies, Inc. 2001 Stock Plan (the "2001 Plan"), a non-qualified stock option plan under which the Company may issue up to 2,500,000 stock options and bonuses of common stock of the Company to provide incentives to officers, directors, key employees and other persons who contribute to the success of the Company. This plan was amended during December 2001 to increase the number of common stock options that may be granted from 2,500,000 to 3,500,000 stock options. As at June 30, 2012, there were 464,500 common stock options available under this plan.

In April 2003, the Company adopted the "Integral Technologies, Inc. 2003 Stock Plan" (the "2003 Plan"), a non-qualified stock option plan under which the Company may issue up to 1,500,000 stock options. As of June 30, 2012, there were 1,375,000 common stock options available under this plan.

During the year ended June 30, 2010, the Company adopted the "Integral Technologies, Inc. 2009 Stock Plan" (the "2009 Plan"), a non-qualified stock option plan under which the Company may issue up to 4,000,000 common stock options. As of June 30, 2012, there were 660,500 common stock options available under this plan.

Pursuant to the 2001, 2003 and 2009 Plans

During the year ended June 30, 2010, the Company extended the expiry dates of 625,000 common stock options, which resulted in additional stock-based compensation of $180,000.

During the year ended June 30, 2010, the Company granted options to directors and consultants to acquire a total of 1,500,000 shares of common stock, exercisable at $0.25 per share. Director options will expire the earlier of December 31, 2014 or one year after termination of employment with the Company, whilst consultant options will expire the earlier of December 31, 2012 or six months after termination of employment with the Company. During the year ended June 30, 2010, the Company also signed a consulting agreement that expired on July 31, 2011. The Company granted an option to acquire a total of 2,000,000 shares of common stock, exercisable at $0.25 per share to the consultant. Every three months, 200,000 options vested beginning July 10, 2009 to April 10, 2011, and the remaining 400,000 options vested on July 10, 2011. All vested options will expire the earlier of December 31, 2012 or six months after termination of employment with the Company.

During the year ended June 30, 2011, the Company granted options to directors to acquire a total of 600,000 shares of common stock exercisable at $0.85 per share. Every six months, 100,000 options will vest beginning June 1, 2011 to December 1, 2013 and 100,000 vested options will expire the earlier of every six months beginning June 1, 2014 to December 1, 2016 or one year after termination of employment with the Company (note 13(a)).

During the year ended June 30, 2011, the Company granted options to consultants to acquire a total of 1,775,000 shares of common stock at a weighted average exercise price of $0.48 per share; 125,000 options vested on the grant date. Of the remaining 1,650,000 granted options (notes 13(b), and (d)), 275,000 options will vest every six months from grant date and expire the earlier of every six months from the third anniversary of the vesting date or six months after termination of the consulting agreement.

Stock-based compensation

During the year ended June 30, 2012, the Company recorded stock-based compensation expense with respect to vested stock options of $337,002 (2011 - $321,128), which has been included as consulting fees.

During the year ended June 30, 2012, 300,000 consulting warrants with expiry dates of February 28, 2012, were extended to February 28, 2014. The Company recorded stock-based compensation expense with respect to the amended terms of $39,696 (2011 - $nil), which has been included as consulting fees.

Stock-based compensation not yet recognized at June 30, 2012 relating to non-vested stock options was $115,826, which will be recognized over a weighted average period of 0.75 years.

Key assumptions

The fair value of the Company's stock options was estimated on the measurement date using the Black-Scholes option pricing model with the following weighted average assumptions:

	2012			2011			2010

Expected life (years)		3.48			4.33			2.39
Interest rate		1.03	%		1.27	%		1.10	%
Volatility		102.31	%		96.27	%		162.90	%
Dividend yield		0.00	%		0.00	%		0.00	%
Estimated forfeitures		0.00	%		0.00	%		0.00	%

Expected life: The Company's expected term represents the period that the Company's stock-based awards are expected to be outstanding and was determined based on historical experience and vesting schedules of similar awards.

Risk-free interest rate: The Company bases the risk-free interest rate used in the Black-Scholes valuation method on the implied yield currently available on US Treasury zero-coupon issues with an equivalent remaining term.

Expected volatility: The Company's expected volatility represents the weighted average historical volatility of the Company's common stock for a period equal to the expected life of the options.

Expected dividend: The Black-Scholes valuation model calls for a single expected dividend yield as an input. The dividend yield is determined by dividing the expected per stock dividend for its common stock during the coming year by the grant date stock price of those stock. The expected dividend assumption is based on the Company's current expectations about its anticipated dividend policy.

Estimated forfeitures: Represents the Company's historical forfeitures for the most recent two-year period and considers termination behavior as well as analysis of actual option forfeitures.

Stock option activity

The following table summarizes the Company's stock option activity for the years ended June 30, 2012, 2011 and 2010:

	Number of Options			Price Per Option		Weighted Average Exercise Price

Outstanding, June 30, 2009		3,370,000		$	0.50 to $ 2.25	$	1.21
Granted		3,500,000		$	0.25	$	0.25
Expired		(300,000	)	$	1.00 to $ 1.16	$	1.08
Cancelled		(2,445,000	)	$	0.65 to $ 2.25	$	1.28

Outstanding, June 30, 2010		4,125,000		$	0.25 to $ 1.00	$	0.36
Granted		2,375,000		$	0.25 to $ 0.85	$	0.58

Outstanding, June 30, 2012 and 2011		6,500,000		$	0.25 to $ 1.00	$	0.44
Exercisable, June 30, 2012		5,100,000		$	0.25 to $ 1.00	$	0.40

The following summarizes the options outstanding and exercisable:

	Number of Options
Expiry Date	Exercise Price		June 30, 2012		June 30, 2011

December 31, 2013(1)	$	1.00		110,000		110,000
December 31, 2012	$	0.25		2,500,000		2,500,000
December 31, 2013(2)	$	1.00		100,000		100,000
March 9, 2014	$	0.25		125,000		125,000
June 1, 2014	$	0.85		100,000		100,000
October 15, 2014	$	0.50		100,000		100,000
July 31, 2014(3)	$	1.00		415,000		415,000
December 1, 2014	$	0.50		175,000		175,000
December 1, 2014	$	0.85		100,000		100,000
December 31, 2014	$	0.25		1,000,000		1,000,000
April 15, 2015	$	0.50		100,000		100,000
June 1, 2015	$	0.50		175,000		175,000
June 1, 2015	$	0.85		100,000		100,000
October 15, 2015	$	0.50		100,000		100,000
December 1, 2015	$	0.50		175,000		175,000
December 1, 2015	$	0.85		100,000		100,000
April 15, 2016	$	0.50		100,000		100,000
June 1, 2016	$	0.50		175,000		175,000
June 1, 2016	$	0.85		100,000		100,000
October 15, 2016	$	0.50		100,000		100,000
December 1, 2016	$	0.50		175,000		175,000
December 1, 2016	$	0.85		100,000		100,000
April 15, 2017	$	0.50		100,000		100,000
June 1, 2017	$	0.50		175,000		175,000

Total outstanding				6,500,000		6,500,000
Total exercisable				5,100,000		3,950,000

(1)

During the year ended June 30, 2010, the expiry date of the options was extended from December 31, 2011 to December 31, 2013.

(2)

During the year ended June 30, 2010, the expiry date of these options was extended from November 15, 2010 to December 31, 2013.

(3)

During the year ended June 30, 2010, the expiry date of these options was extended from December 31, 2010 to July 31, 2014.

The number of options granted during the year ended June 30, 2012 that did not vest immediately upon grant was nil (2011 – 2,250,000; 2010 - 2,000,000), of which 750,000 vested during the year ended June 30, 2012 (2011 – 1,300,000; 2010 - 800,000) and 1,400,000 (2011 - 2,150,000; 2010 - 1,200,000) remain unvested at June 30, 2012.

No options were exercised during the years ended June 30, 2012 and 2011.

The aggregate intrinsic value of options outstanding and exercisable as at June 30, 2012 was $471,250 (2011 - $906,250) and $471,250 (2011 - $806,250), respectively. The aggregate intrinsic values exclude options having a negative aggregate intrinsic value due to awards with exercise prices greater than market value. The intrinsic value is the difference between the market value of the shares and the exercise price of the award as of the period end date.

The weighted average remaining contractual lives for options outstanding and exercisable at June 30, 2012 are 2.00 and 1.43 years, respectively.

The weighted average measurement date fair value of options modified during the year ended June 30, 2012 was $nil (2011 - $0.44), granted during the year ended June 30, 2012 was $nil (2011 - $0.57) and vested during the year ended June 30, 2012 was $0.18 (2011 - $0.42).

(d)

Stock purchase warrants

The following summarizes information about the Company's stock purchase warrants outstanding:

	Number of Warrants			Exercise Price Per Warrant		Weighted Average Exercise Price

Balance, June 30, 2010		8,763,952				$	0.60
Issued		1,316,553		$	1.00	$	1.00
Exercised		(860,800	)	$	0.50	$	0.50
Expired		(2,970,000	)	$	0.50	$	0.50

Balance, June 30, 2011		6,249,705				$	0.74
Issued		4,770,398		$	0.57 to $1.00	$	0.68
Reinstated(1)		3,040,000		$	0.50	$	0.50

Balance, June 30, 2012		14,060,103				$	0.67

(1)

During the year ended June 30, 2011 these investor warrants had expired. During the year ended June 30, 2012 these warrants were reinstated with original terms and holders. The expiry date of the reinstated warrants was extended to December 31, 2013. This did not result in any additional incremental value recorded to paid in capital.

	Number of Warrants
Expiry Date	Exercise Price		June 30, 2012		June 30, 2011

December 31, 2013(1)	$	0.50		3,710,000		670,000
December 31, 2013(1)	$	0.70		3,963,152		4,263,152
December 31, 2013(1)	$	1.00		1,358,372		1,316,553
January 3, 2014	$	0.70		856,692		0
January 31, 2014	$	0.70		2,360,459		0
February 14, 2014(2)	$	0.70		300,000		0
March 31, 2014	$	0.57		1,000,000		0
November 29, 2016	$	0.70		511,428		0

Total outstanding and exercisable				14,060,103		6,249,705

(1)

During the year ended June 30, 2012, these warrants were extended to December 31, 2013.

(2)

During the year ended June 30, 2012, 300,000 warrants with expiry dates of February 28, 2012, were extended to February 14, 2014.

In August 2010, the Company extended the expiry date of 670,000 warrants which were originally issued in conjunction with equity issues during 2008 from December 31, 2010 to December 31, 2011. The modification resulted in a deemed dividend of $131,577, which was calculated as the difference in the fair value of the warrants immediately before and after the modification using the Black-Scholes option pricing model with the following significant assumptions:

	Before		After

Remaining term (years)	0.35		1.35
Interest rate	0.16	%	0.25	%
Volatility	55.58	%	119.04	%
Dividend yield	0.00	%	0.00	%
Estimated forfeitures	0.00	%	0.00	%

(e)

Promissory notes receivable at June 30, 2012 includes:

(i)

$17,500 (2010 - $17,500) due on exercise of 210,000 stock options, interest at 10% per annum, due November 1, 2002, subsequently extended to June 30, 2003; and

(ii)

$12,237 (2010 - $12,237) due on exercise of 23,000 stock options, interest at 10% per annum, due June 30, 2003.

Shares issued on exercise of options are restricted from trading. The restrictions will not be removed until the respective notes are paid to the Company.

(f)

Subscriptions received

(i)

During the year ended June 30, 2010, $11,250 was received for subscriptions of 15,000 units consisting of common stock at $0.75 per share and warrants at $0.001 per share of common stock underlying the warrant to purchase 15,000 shares of common stock on or before two years after the closing date at an exercise price of $1.00 per share (exercise of the investment warrant may be required in the event that the market price for the common stock exceeds $1.50 per share). These units were issued during the year ended June 30, 2011.

(ii)

During the year ended June 30, 2012, $191,600 was received for subscriptions of 540,640 units consisting of common stock at $0.35 per share and warrants at $0.001 per share of common stock underlying the warrant to purchase 810,960 shares of common stock on or before two years after the closing date at an exercise price of $0.70.